Indian stock markets faced a decline on Monday, led by selling in banking and Tata Group stocks. Investors opted to book profits ahead of key inflation data releases in both India and the US.

The Nifty 50 benchmark index fell 0.72%, while the Sensex dropped 0.83%. Experts believe this is a natural trend as investors close their books for the month and secure some gains after the recent market highs. Regulatory warnings regarding small and mid-cap funds, coupled with their underperformance, may also contribute to the selling pressure.

The Securities and Exchange Board of India (SEBI) expressed concerns about potential overvaluation and excessive fund flow into smaller companies. This aligns with the underperformance of these segments since SEBI requested increased risk disclosures from mutual funds in late February.

Banking stocks were major contributors to the decline, with financials, public and private banks all dropping between 0.65% and 2%. HDFC Bank faced an additional burden after analysts flagged potential challenges for deposit growth and profit margins. State Bank of India also fell after the Supreme Court rejected their request for more time to disclose political donor information.

Tata Group stocks, including Tata Consumer, Tata Steel, and Tata Motors, saw a decline of 1% to 3.1% on reports suggesting that a near-term listing of Tata Sons is unlikely.

Investors are now looking ahead to key inflation data releases. Consumer price inflation in India is expected to have dipped to a four-month low in February, as per a Reuters poll. Both Indian and US inflation data are scheduled for release on Tuesday, which could further influence market movement in the coming days.